FSCS chief softens product levy stance
FSCS chief Mark Neale appears to have softened his opposition to funding the FSCS by levying financial products, in an exclusive video interview with Investment Adviser.
In the discussion – to be published online this week at www.FTAdviser.com/IA – Mr Neale said that such a levy structure would be more predictable for the industry to manage.
Mr Neale said: “A product levy would be predictable and I think it is for the industry to say clearly if that is the approach they would prefer.”
He pointed out that product levies may include financial advice itself – the ‘product’ sold by financial advisers.
Currently, the FSCS levies the entire investment industry to compensate consumers for the failings of a minority – landing some small adviser businesses with outsized and, in their view, unfair bills.
Mr Neale emphasised that advisers could still influence the final shape of the FSCS funding model that is due to arise from a recent FSA review, in spite of the regulator’s stance in the consultation paper. “I both want to see an assurance that the FSCS will have the money it needs when we need it, [and] I also want to see an outcome which does command wider support in the industry,” he said.
The remarks appear to represent a softening of Mr Neale’s stance on the product levy calls in September 2011, when he reportedly dismissed the idea as a “tax on consumers”.
However, Mr Neale has also insisted the product levy structure would have flaws.
“It’s very hit and miss whether [a product levy] raises the right amount of money,” he said.
“It would have to be set in advance, and how much you raise depends on the demand for products and may bear little relation to what we need to pay out in compensation in the year concerned.”
Currently, if a failed firm owes clients compensation, the FSCS levies solvent firms of a similar type to fund it – which solvent firms say is unfair.
This has led to investment advisers, which fall into the FSCS’s investment intermediaries levy sub-class, being forced to contribute towards the failures of companies such as Keydata, Wills & Co, MF Global and Arch Cru.
Several advisers are now calling for an explicit product levy to be added to financial products at the point of sale to pay for FSCS cover, including PanaceaIFA, Martin Bamford of Informed Choice, and Paul Harding of Chevening Financial.
The full video interview will be available to view at www.FTAdviser.com/IA from Tuesday September 4.